The Impacts of Mode of Communication with the Bank on the Cost of Bank Loans: Evidence from Small Businesses

Using an analysis of data of small businesses from the United States, we find that small-business owners who are highly experienced and have a high level of education have high financing capacity, which is achieved by lowering the cost of bank loans to a firm. By contrast, poor credit history of owners in the past adversely affects bank loans. Especially, these results are mainly obtained from the analysis of small businesses that conduct business with banks by visiting in person. In addition, the conventional paradigm suggests that community banks (small, single-market, local banks) are better able to form strong relationships with informationally opaque small businesses, while ＂megabanks＂ (large, multimarket, nonlocal banks) tend to serve more transparent firms. But our results are often not consistent with the conventional paradigm, possibly because of changes in lending technologies and deregulation of the banking industry.